[BRIEFING.COM] Stocks sold off for a second straight day as investors continued to view Bernanke's latest comments as "unwelcome developments." Albeit not closing at session lows, as a renewed wave of buying late in the day more than halved another broad-based decline, fears that the Fed will go too far with its tightening efforts continued to weaken an already cautious tone.
A dearth of market-moving economic and earnings data left investors even more focused on interest rate uncertainty, pricing in a worst-case scenario with regard to the Fed's next move at their June 29-30 meeting. More hawkish commentary, this time from St. Louis Fed President Poole and Fed Governor Bies, reminded investors that fed funds futures are still pricing in about an 80% chance of another 1/4% rate hike at the next FOMC meeting. Poole echoed Bernanke's vigilance by warning in a WSJ interview that slowing growth may not be adequate to hold down actual inflation. Bies said that she is uncomfortable with inflation above 2% and that policy makers don't exactly know when to stop raising rates as increases still feed their way through the economy. Bernanke's tough talk on inflation now puts the focus squarely on next week's influential PPI and CPI data. To wit, if the May core CPI comes in at 0.3% for a third consecutive month next Wednesday, the Fed Chairman will be pressured to raise rates for a 17th straight time at the next FOMC meeting in a few weeks, regardless of the incoming economic data.
Despite some relief on the commodity price front, which provided an early source of market support, limited leadership from Energy was not enough since the fact that possible future price increases "remain a risk to the inflation outlook" only added to the underlying sense of nervousness.
Consumer Discretionary was the most influential leader to the downside, amid further consolidation in homebuilders and autos. Homebuilding turned in the day's worst performance, extending its year-to-date leading 31% decline as all five of the index's components hit 52-week lows after Wachovia downgraded DR Horton (DHI 23.35 -1.46). KB Homes (KBH 45.80 -3.30) and Pulte Homes (PHM 27.98 -1.77). General Motors (GM 25.31 -0.74), which warned it will continue to face competitive challenges amid high raw material prices, also weighed on the sector. Technology also lost ground, led by two of its most influential components -- Microsoft Corp. (MSFT 22.02 -0.48) and Intel Corp (INTC 17.74 -0.24) -- hitting intraday 52-week lows, which plays into our recent downgrade on the sector to Market Weight. Microsoft lost ground after Google (GOOG 385.45 +11.01) said it will launch a competing web-based spreadsheet program.
Even though a 47-point decline on the Dow Industrials paled in comparison to Monday's 199-point reversal which left only one component -- Disney (DIS 30.58 -0.16), an Active Portfolio holding -- with a gain, further consolidation in the index's best performers, like Boeing (BA 80.60 -1.53) and United Technologies (UTX 60.02 -1.43), pushed it below the 11,000 mark for the first time since March 10th, where it stayed until the closing bell. The late-day recovery effort notwithstanding, the market is not likely to make a major move upward until the interest rate outlook becomes clearer. NYSE Adv/Dec 1095/2140...Nasdaq Adv/Dec 1219/1827
DOW Price at posting:
0.0¢ Sentiment: None Disclosure: Not Held
A personalised tool to help users track selected stocks. Delivering real-time notifications on price updates, announcements, and performance stats on each to help make informed investment decisions.
(20min delay)